Saving Goals for Every Age: From Your 20s, 30s, 40s to 50s
As a culture, we’re terrible at thinking about saving. Occupied with consumption and living in the moment, we don’t like to plan for the future.
But it’s vital to take care of your savings, both to see you through the tough times and to prepare for retirement.
By building a structured plan, you can make it easier to make those savings. Specific goals for specific points in life can give you that structure. So what should those goals be?
In Your 20s
The first step is to save up an emergency fund. This is money that will see you through any unexpected crisis, such as losing your job or being unable to work due to ill health. Save up enough to cover your expenses for three to six months.
This includes rent, food, utilities, and travel. You might also want to set a little more aside so that you won’t just be scraping by in a time of crisis.
Next comes paying off student loans. The sooner these are repaid, the less you have to worry about the interest they’ll accumulate and future costs. Make the financial effort to pay them off as quickly as possible.
It might seem like a drag, but it’ll set you up for future spending and saving. Your twenties are also the time to start saving for retirement.
At first, this might be difficult, as you’re not earning a huge amount and there are expenses such as student loans to cover. By the end of the decade, you should be setting aside 10-15% of your income and have built up a pot equal to between half and all of your annual salary.
This includes funds in pension schemes and money that you’ve set aside.
Consider putting that set-aside money into investments rather than savings, as it will grow in value better that way.
Of course, by the time you’re 30, you’ll also be looking at buying a house, so some of your savings will go towards that.
Between the deposit, loans, and retirement fund, it might feel like this is eating up nearly all your spare money at a time when you want to be enjoying life.
But the sooner you start saving, the more you’ll benefit from the profits of interest and investment.
30s
During your 30s, you’ll continue keeping the emergency fund in line with your expenses, as well as building up the retirement fund.
The goal by the end of your 30s should be to have around three times your annual income in retirement savings and investments.
Another task for this decade is to pay off non-mortgage debt such as car loans and accumulated credit card bills.
Like paying off your student loan, this saves you from the expense of accumulating interest and frees up money in future.
If you have children, then you’ll also need to set money aside for their education.
Think about what you want them to achieve and what will be needed to help them through.
Like your retirement savings, this money is best set aside as investments rather than in a savings account, as it will gain more value in the long term, thanks to compounding profits.
40s
Your forties are the time to pay off your mortgage, freeing you from all the constraints of debt.
This is a big move, but the sooner you can do it, the better off you’ll be financially.
Keep topping up the emergency fund and adding to the pot for education if you have kids. But the biggest part of your savings should still go towards retirement.
By the end of your forties, you want to have around five times your annual income invested towards retirement, to ensure that you’ll have a comfortable lifestyle when you get there.
50s
Those savings should keep accumulating in your 50s, aiming for at least seven times your annual income by the end of the decade.
That will leave you with time to top it up further before retirement, and let you live off your investments and savings into old age.
Speaking of retirement, this is the time to fine-tune your planning.
Work out what sort of lifestyle you’ll want and how much money you’ll need for it.
This might lead you to set more money aside or make different sorts of investments, once you’ve worked out where you want your money to come from.
It’s also worth looking at insurance or saving for long-term care.
Few of us are lucky enough to remain fully independent into old age. Better to have a plan and the finance to cover it than to let the need for care take you by surprise.
If you plan and save carefully, by the time you reach your 60s, you’ll be well set, with only the finishing touches needed.
A lifetime of saving will have seen you through
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
